The relative importance of lipid rafts vs. specialized rafts termed caveolae to influence signal transduction is not known. Here we show that in cells lacking caveolae, the dually acylated protein, endothelial nitric oxide synthase (eNOS), localizes to cholesterolrich lipid raft domains of the plasma membrane. In these cells, expression of caveolin-1 (cav-1) stimulates caveolae biogenesis, promotes the interaction of cav-1 with eNOS, and the inhibition of NO release from cells. Interestingly, in cells where cav-1 does not drive caveolae assembly, despite equal levels of cav-1 and eNOS and localization of both proteins to raft domains of the plasmalemma, the physical interaction of eNOS with cav-1 is dramatically less resulting in less inhibition of NO release. Thus, cav-1 concentrated in caveolae, not in rafts, is in closer proximity to eNOS and is necessary for negative regulation of eNOS function, thereby providing the first clear example of spatial regulation of signaling in this organelle that is distinct from raft domains.T he lipid raft hypothesis formulated more than 10 years ago (1), postulated the existence of lipid rafts as dynamic assemblies of cholesterol and sphingolipids in the plasma membrane. Caveolae are specialized lipid rafts because of the ability of caveolins to initiate caveolae biogenesis from raft-derived components. The proposed functions of rafts͞caveolae are diverse and somewhat controversial, including cholesterol transport (2, 3), endocytosis (4), potocytosis (5), and signal transduction (6-9). In addition, there is much confusion in the literature where the distinction among lipid rafts, flattened caveolae, or caveolae proper is less than clear, thus making it difficult to ascertain which cellular functions might be attributable to rafts, caveolae, or caveolins, per se.For example, because cholesterol-modifying drugs such as cyclodextrins remove cholesterol from plasmalemmal rafts and caveolae, these reagents cannot distinguish between signaling events occurring in these compartments. Moreover, from a biophysical perspective, it is unknown whether the curvature and structure of plasmalemma-attached caveolae with caveolin-1 (cav-1) as the coat protein or whether the presence of cav-1 protein in the plasma membrane, per se, is necessary for the effects of cav-1 on any target protein or function. This distinction is important because although cav-1 is the main structural protein of caveolae, it may also exist in lipid rafts without the formation of plasmalemma-attached caveolae (10), be found in the trans-Golgi network as originally described (9), or found in other organelles (11).Endothelial nitric-oxide synthase (eNOS) is a dually acylated signaling protein responsible for the production of nitric oxide (NO) in the cardiovascular system. N-myristoylated and cysteine palmitoylation of eNOS targets eNOS to the cytoplasmic face of the Golgi and to plasmalemmal caveolae. eNOS in these domains can interface with several aspects of signal transduction systems through direct interactions wi...